Sponsored By:

Schlumberger Ltd. (SLB)

"Buy to open" the SLB April 50 Calls (SLBDJ) for 40 cents or less, and "sell to open" the SLB April 35 Puts (SLBPG) for $1.35 or more for a net credit of 95 cents or more

Dear Fellow Options Traders,

Here is another case where we can get paid to trade. Let's open a credit spread to take advantage of the high premiums in a high quality oil and gas service company, Schlumberger Ltd. (SLB). We can collect a credit and wait to see if a 50-strike "lottery ticket" on SLB pays out before April expiration.

"Buy to open" the SLB April 50 Calls (SLBDJ) for 40 cents or less, and "sell to open" the SLB April 35 Puts (SLBPG) for $1.35 or more for a net credit of 95 cents or more.

During the worst parts of the market sell-off, SLB never went below $35 per share. We could just buy the call, but why not collect the premium on the overpriced 35 strike puts and let the market pay us to open this position?

SLB's earnings are scheduled to be reported April 24, well after options expiration on April 17. Oil prices are firm and trending higher, and this bullish spread can help us take advantage of that.

We have seen institutional options flow in the SLB March, April and May 40, 45 and 55 calls. After a long sideways drift since late 2008, it appears option investors expect this stock to go well north of $45 per share, and we can position ourselves to profit from that move with this trade.

Have a good day trading.

Nick Atkeson and Andrew Houghton